Total addressable market, also called total available market, is a term that
is typically used to reference the revenue opportunity available for a
product or service. TAM helps to prioritize business opportunities by
serving as a quick metric of the underlying potential of a given
opportunity. One approach is to estimate how much of
the market any company can gain if there were no competitors. A more encompassing
variation is to estimate the market size that could theoretically be served with
a specific product or service. TAM can be defined as a global total or, more
commonly, as a market that one specific company could serve. This focuses
strategic marketing and sales efforts and addresses actual customer needs. The
inclusion of constraints such as competition and distribution challenges
then modifies the strategy to frame it with realistic boundaries, reducing the
market down to the serviceable available market, the percentage of the market
that can actually be served out of the TAM.
Difference between TAM, SAM and SOM Total Addressable market, or Total
Available Market, is the total market demand for a product or service,
calculated in annual revenue or unite sales if 100% of available market is
achieved. Serviceable Available Market, is the
portion of TAM targeted and served by your products or services.
Serviceable Obtainable Market, or Share of Market, is the percentage of SAM
which is realistically reached. For example, the total UK consumer
expenditure on food in 2014, which is the Total Addressable Market of food
market is £198 billion(including catering, alcoholic drinks,
non-alcoholic drinks and other foods ). The Serviceable Available Market for
alcoholic drinks, which producers of alcoholic drinks target and serve is £49
billion. Since the market for alcoholic drinks is not monopoly, the Share of
Market for a company producing alcoholic drinks can never reach 100% of SAM.
Importance of TAM Total Addressable Market shows the
potential scale of the market. Estimating TAM is the first step for
entrepreneurs to start up their business. It is important to estimate
TAM objectively instead of exaggerating or underestimating this value with
subjective attitudes, as it is vital to allocate a suitable market with
potential growing capacity. Investors often tend to look for markets with high
TAM values, showing confidence in such markets with great potential to increase
demand for their products and services. This is a reasonable deduction, while on
the other hand, high value of TAM is not necessarily a good sign, as total
available market does not mean the high degree of demand obtained. Some other
factors such as competition level in the market, accessibility of resources, etc.
would also affect the performance of the company. Hence SAM and SOM are also
important indicators to measure if the market is worth investing.
Illustrations of real-world news about TAM
The Morgan Stanley analyst Katy Huberty said in her research report that Apple
could reach $3.4 trillion of total addressable market by 2020, from $800
billion today, since it expands into new markets such as cars.(Mar 20, 2015)
Alibaba still has potential to incredibly increase total addressable
market up to 40%, stated by Jim O'Donnell, Chief Investment Officer of
Forward Management, as he believes Alibaba is not only expanding China's
market but also markets outside China.(Jan 30, 2015)
The total addressable market for pulsed RF power semiconductor keeps increasing
in spite of degeneration in market for wireless infrastructure, as
manufacturers are stepping into the new markets for pulsed RF power
semiconductor such as transportation and military.(Nov 2014)
The market size for microwave tubes is poorly realized by the general public,
yet in fact its total addressable market has reached nearly $1 billion, as
microwave tubes are commonly used in areas such as military, medical and
space communication applications.(Jan 2009)
The total addressable market for comparators reached $173 million in
2003, and would reach $273 million in 2009.(Apr 07, 2004)
The market for contracted manufacturing services keeps growing compared with
Combined, electronics manufacturing services and original design
manufacturers. Its serviceable obtainable market reached $560 million
in 2001, and has a potential to obtain 27% of TAM of electronics and IT
industry by 2006, stated by Kevin Kane, program manager for IDC's Contract
Manufacturing Services.(Oct 31, 2002) References